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Dish aims to marry TVs and smartphones with Sprint merger

By Andy Vuong The Denver Post

Posted:
04/15/2013 06:52:18 PM MDT

Updated:
04/16/2013 09:00:18 AM MDT

Three Dish Network satellite dishes are shown at an apartment complex in Palo Alto, Calif. Dish Network Corp., the nation's second-largest satellite TV broadcaster, on Monday May 2, 2011, reported that its first-quarter net income more than doubled, helped by a patent settlement with TiVo Inc. (Paul Sakuma, AP)

Dish Network's proposed merger with Sprint Nextel is the boldest attempt yet by any player in the subscription TV and wireless industries to marry the two services, a deal that could blur the lines between televisions and cellphones and allow advertisers to better target consumers.

Douglas County-based Dish on Monday launched an unsolicited $25.5 billion cash and stock offer for Sprint. The bid competes with a pending agreement between Sprint and Tokyo-based Softbank, which has offered $20 billion for a 70 percent stake in the No. 3 U.S. wireless carrier.

Sprint said Monday it would carefully review the proposal and declined further comment. The combined company would employ about 74,000, serve more than 60 million wireless and satellite-TV subscribers nationwide and generate nearly $50 billion in annual revenue.

"Consumers should be thrilled that someone finally plans on investing to give them video where and when they want it," said BTIG analyst Walter Piecyk.

The bid for Sprint is the final step in a strategy that Dish chairman and co-founder Charlie Ergen ties back to the company's 2007 acquisition of Sling Media, creators of technology that enables Dish customers to watch their subscribed channels on a mobile device via an Internet connection.

Ergen also spent about $4 billion stockpiling wireless spectrum and related assets, with plans to build a 4G wireless network to better enable consumers to watch video on the go.

"You want to be able to be connected no matter where you are, and you want to be able to watch your television no matter where you are, and you don't want to pay for it twice," Ergen said Monday during a conference call with analysts. "While the cable industry does a really good job in your home, and the current wireless industry does a really good job outside your home, there's really no one company on a national scale that puts it all together. The new Dish-Sprint will do that."

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Verizon Wireless and AT&T, by far the nation's largest wireless carriers, have their own video services but only in limited areas. Cable companies don't offer their own cellphone service, though some have a joint marketing deal with Verizon.

With Sprint, which is in the midst of rolling out nationwide 4G LTE service, Ergen would control the wireless network he's coveted to pair with his satellite-TV offering.

Poised to capitalize

The move harkens back to Ergen's role as a disrupter when he took on the cable-TV giants with an upstart satellite company in the 1980s.

"No one's made a real success of mobile video yet, at least to monetize it in a serious way," said Tim Farrar, a wireless and satellite consultant with TMF Associates. "He's got a better shot than anyone else of pulling this whole thing off."

For consumers, Ergen is promising simpler bills and seamless interaction between the TV, set-top box and cellphone. He also plans to attach a small antenna to a subscriber's satellite dish to offer wireless broadband service in unserved or underserved communities.

"Owning a wireless company could allow Dish to bring Sling technology to a mass market - for example you could exempt Sling content from a wireless subscriber's data cap if they buy TV and wireless service from Dish," Farrar said. "There shouldn't be barriers to (Ergen) saying 'OK, we'll exempt Sling-based content from your cap, but not other mobile video like MLB TV or whatever it might be that you would subscribe to separately."

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Similar to the cost savings seen in cable's triple play packages, subscribers who bundle Sprint and Dish services would likely be able to cut a few dollars off their monthly bills.

Dish serves 14 million satellite-TV subscribers, translating to an estimated 35 million potential cellphone customers, said Dish executive vice president Tom Cullen. Sprint's 47.5 million retail subscribers represent about 17 million U.S. households that Dish could target with its video service.

Offering cellphone service could help Dish grow revenue amid a mature pay-TV business, one that has seen its margins shrink as programming costs continue to escalate, said Ian Olgeirson, a senior analyst with SNL Kagan.

"It gives them another place that they can try to make money," Olgeirson said. "Second, it gives them some glue between a couple of different elements to keep customers on board because they're taking more than one service."

Ergen said bundles would be available in the near term, but it may take two to three years to implement the full slate of in- home and out-0f-home services.

He also said Dish could offer more tailored ads based on combined data from its Hopper set-top box and a subscriber's smartphone.

"Hopper in your home is pretty smart, knows what you're watching, and we can pull very specific ads to you," Ergen said. "But when you get outside the home with the smartphone, it's even smarter. It knows where you go on the Web, it knows who you call, it knows physically with GPS where you are. In the future, that phone is also going to be your wallet, so it knows what you spend money on."

Plans were delayed

While Ergen began compiling pieces for the mobile broadband business years ago, the company's plans were delayed amid a lengthy regulatory review tied to its spectrum. With AT&T and Verizon already offering nationwide 4G service, Ergen was essentially forced into partnering with an existing carrier or risk falling further behind.

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